Power Supply

Agreement
ROOTS

Sec. 38 of EPIRA

“There is hereby created on independent,

quasi-judicial regulatory body to be named
the Energy Regulatory Commission (ERC)”
MOST ESPECIALLY:

EPIRA – RA 9136
Sec. 41. Promotion of Consumer Interest.
– The ERC shall handle consumers
complaints and ensure the adequate
promotion of consumer interest
ENERGY REGULATORY COMMISION (ERC)

FIVE MAJOR FUNCTIONS

• Promote Competition
• Monitor The Market
• Encourage Market Development
• Ensure Customer Price
• Penalize Abuse of Market Power
ENERGY REGULATORY COMMISION (ERC)

MAJOR TASKS
• Generation
• Transmission
• Supply
• Distribution
 ENERGY REGULATORY COMMISION (ERC)

GENERATION
• Certificate of Compliance
• Generation tariffs (Captive Bilateral PSA &
RE LAW FiT)
• SPUG (Missionary Electrification)
• WESM monitoring
• Competition Rules
 ENERGY REGULATORY COMMISION (ERC)

TRANSMISSION SUPPLY
• Tariffs of NGCP TRANSCO • Suppliers’ licenses
• Philippine Grid Code • Issuance of needed rules
• CAPEX plans for retail competition
• Ancillary services • Declaration of open access
and retail competition
 ENERGY REGULATORY COMMISION (ERC)

DISTRIBUTION • Certificate of Public

Conveniece and Necessity
• Tariffs of distribution utilities • Spot inspections/ audits
• Philippine Distribution Code • Bilateral power supply
• Lifeline rate contracts
• Franchise for consortium of • CAPEX plans
sub- transmission assets • Magna Carta and DSOAR
• Stranded contract cost enforcement
• Systems loss • Loan Condonation
ENERGY REGULATORY COMMISION (ERC)

BASIC CONCEPTS ON
POWER SUPPLY AGREEMENTS
(PSA)
POWER SUPPLY AGREEMENT
• A Power Supply Agreement is a bilateral agreement
between a Generation Company (GenCo) and a
Distribution Utility (DU) for the purchase and supply of
power.

• It is intended to identify the major elements of a

potential transaction that would be embodied in a
definitive PSA and provide a sample of the provisions
that may be adopted in the drafting of a definitive PSA.
 POWER SUPPLY AGREEMENT
Section 25, Chapter 2 of the Republic Act No. 9136 or the
Electric Power Industry Reform Act of 2001 (EPIRA) states
that: RETAIL RATE. The retail rates charged by distribution
utilities for the supply of electricity in their captive market
shall be subject to regulation by the ERC based on the
principle of full recovery of prudent and reasonable
economic costs incurred, or such other principles that will
promote efficiency as may be determined by the ERC.
POWER SUPPLY AGREEMENT
POWER GENERATION SOURCES

COAL 47.6%

GAS 10.7%
POWER SUPPLY AGREEMENT
POWER GENERATION SOURCES

HYDRO 9.7%

BIOENERGY 2.1%
POWER SUPPLY AGREEMENT
POWER GENERATION SOURCES

OTHER RENEWABLES 9.4%

SOLAR 1.3% WIND 1.2%

POWER SUPPLY AGREEMENT
GENERATION CHARGE
• Biggest component of the retail rate
(around 40% to 60%)
• Through the generation charge, the
DUs recover their generation costs
associated with their energy
purchases from
A PSLAM/NPS (under duly approved NPC TOU Rate
TSCs)
B IPP (under duly approved PSAs) ERC-approved Contract
Rate
C WESM Spot Market Value
 POWER SUPPLY AGREEMENT
RATE STRUCTURE REVIEW
What does the ERC look in to its PSA review and approval process?

CAPITAL FEE/CAPITAL RECOVERY FEE FIXED COST

FUEL RECOVERY FEE/ENERGY FEE VARIABLE COST

VARIABLE O&M
OPERATION & MAINTENACE FEE
FIXED O&M
POWER SUPPLY AGREEMENT
GENERATION RATE STRUCTURE

CAPITAL FEE/CAPITAL RECOVERY FEE FIXED COST

• Cost for the recovery of capital or investment incurred in

putting up the power plant
• Fixed for the duration of the project life/plant economic life
POWER SUPPLY AGREEMENT
GENERATION RATE STRUCTURE

FUEL RECOVERY FEE/ENERGY FEE VARIABLE COST

• Pass-through cost to allow recovery of fuel consumed to

generate power
• Cost also depends on the plant heat rate
POWER SUPPLY AGREEMENT
GENERATION RATE STRUCTURE
FIXED O&M
OPERATION & MAINTENACE FEE
VARIABLE O&M

• Costs involved in operating and maintaining a utility plant and in

the provision of utility service; and
• Operating outlays consist mainly of costs for purchased power,
fuel, wages, applicable taxes, maintenance, supplies, and other
necessary expenditures.
POWER SUPPLY AGREEMENT
GENERATION RATE APPROVAL

2 STEPS
•PROVISIONAL STEP
•FINAL APPROVAL
POWER SUPPLY AGREEMENT
PROCEDURE FOR THE APPLICARION OF PSA
POWER SUPPLY AGREEMENT
POWER SUPPLY AGREEMENT ON THE SALE OF ELECTRICITY

KEY POINTS SHOULD INCLUDE IN A POWER SUPPLY AGREEMENT.

• WHEREAS, pursuant to Section 70 of Republic Act No. 9136 and
Section 1.a and Section 3.a of Rule 13 of the Implementing Rules
and Regulations (IRR) of Republic Act No. 9136, the Small Power
Utilities Group (SPUG) of NPC is responsible for providing power
generation and its associated power delivery systems in areas
that are not connected to the transmission system;
 POWER SUPPLY AGREEMENT
• WHEREAS, Section 1.b of Rule 13 of the IRR of Republic Act. No. 9136
states that the Missionary Electrification function of SPUG shall be
funded from the revenues from sales in the missionary areas and from
the Universal Charge to be collected from all electricity End-users as
determined by the Energy Regulatory Commission (ERC);
• WHEREAS, Section 3.b of Rule 13 of the IRR of Republic Act. No. 9136
obliges SPUG to periodically assess the requirements and prospects for
bringing its functions to commercial viability on an area-by-area basis,
including a program to encourage private sector participation
 POWER SUPPLY AGREEMENT
• WHEREAS, the Universal Charge that shall be determined by ERC will
be based on the Missionary Electrification Development Plan (MEDP)
that the Department of Energy (DOE) formulates in consultation and
coordination with NPC-SPUG, National Electrification Administration
(NEA), New Private/Power Providers (NPPs), Independent Power
Producers, Distribution Utilities (DUs) and Qualified Third Parties
(QTPs);
• WHEREAS, the MEDP shall include the prioritization of projects and
particularly the use of the Universal Charge; NPC AGREEMENT FOR
THE SUPPLY OF ELECTRICITY
 POWER SUPPLY AGREEMENT
• WHEREAS, the ERC and NPC-SPUG shall facilitate the
determination of the universal charge based on the concluded
Power Supply Agreements (PSAs) between NPC-SPUG and its
CUSTOMERs that will include contracted demand and energy;
• WHEREAS, the PSA shall serve as basis for the prioritization on
the allocation of the universal charge in the implementation of
programs and projects in the corresponding DUs customers,
• WHEREAS, Section 23 of Republic Act No. 9136 and Section 4.f of
Rule 7 of the IRR of Republic Act No. 9136 mandate a distribution
utility to provide universal service within its franchise area as part
of its social obligations;
POWER SUPPLY AGREEMENT
• WHEREAS, Section 4.h of Rule 7 of the IRR of Republic Act No.
9136 mandates a distribution utility to supply electricity in the
least cost manner to the captive market within its franchise
area;
• WHEREAS, Department Circular No. 2003-12-011 of the DOE
enjoins all distribution utilities to provide adequate, affordable,
quality and reliable electricity,
• NOW, THEREFORE, for and in consideration of the foregoing
premise and the mutual covenants hereinafter contained the
Parties agree as follows:
 POWER SUPPLY AGREEMENT
• SECTION ONE - DEFINITION OF TERMS
1 Definitions and Interpretation
1.2 Interpretation
1.3 Abbreviations
• SECTION TWO – SCOPE OF AGREEMENT
2 SUPPLY
• SECTION THREE - TERM OF AGREEMENT
POWER SUPPLY AGREEMENT
• SECTION FOUR - SERVICE SPECIFICATIONS
4 Contract Demand and Contract Energy
4.1 Service Reliability
4.2 Application for Increase in Demand and Energy
4.3 Assignability
• SECTION FIVE - CHARGES AND ADJUSTMENTS
• SECTION SIX – TERMINATION
POWER SUPPLY AGREEMENT
• SECTION SEVEN – INDEMNIFICATION CROSS INDEMNITY
7 Notice of Claim
7.1 Consequential Losses
7.2 Survival
• SECTION EIGHT - MISCELLANEOUS PROVISIONS FORCE MAJEURE
8.1 Settle of Disputes: Arbitration
8.2 Court Litigation
8.3 Attorney’s Fees and Litigation Expenses
8.4 Notices
8.5 Validity and Binding Effect
8.6 Amendment
8.7 Entire Agreement